Investing, Asset Allocation, Economics & the Search for the Bottom Line

Strategic Briefing | 1.29.14 | Bernanke’s Final FOMC Meeting

Fed taper will remain slow and steady: CNBC surveyCNBC | Jan 28
The Federal Reserve will continue to taper its stimulus of the U.S. economy by announcing a $10 billion reduction in its monthly asset purchases at each of its policymaking meetings scheduled this year, including the two-day session that starts Tuesday. That’s the consensus forecast from 45 of the nation’s top money managers, investment strategists and professional economists who responded to this month’s CNBC Fed Survey. An overwhelming 87 percent expect the Fed to taper by an average of $9.87 billion at this month’s meeting, roughly matching the $10 billion reduction, from $85 billion to $75 billion a month, announced after the the central bank’s December meeting.Fed poised for $10 billion taper as Bernanke bids adieuReuters | Jan 29
Steep losses in emerging market assets over the past week led some to question whether the Fed might put plans to trim its bond buying on hold. Analysts said the prospect of less Fed stimulus had added to other worries, from signs of slower growth in China to political turmoil in countries from Turkey to Thailand, and helped spark investors’ flight.
But on Wednesday, Turkey’s central bank sharply raised its main interest rates, stemming both a slide in the lira and fears about cuts in U.S. monetary stimulus.
That move could make the Fed’s decision to trim its bond buying even easier, economists said.
“It would take a full-blown crisis that ensnares all (emerging market economies) to have a material effect on the U.S. economy, and I don’t think that’s what they see,” said Roberto Perli, a former Fed official who is now a Washington-based partner at economic research firm Cornerstone Macro.

FOMC Likely to Taper Further at Bernanke’s Last Meeting Barron’s | Jan 28
With $10 billion in expected reductions at each of its eight meetings in 2014, the FOMC should be done with QE by the end of the year.
That leaves so-called forward guidance about the future of the federal-funds rate target as the Fed’s main tool. The job market is the key. The FOMC said in December it will likely hold the funds rate target (pinned to the floor at 0-0.25% since the depths of the financial crisis in December 2008) until “well past the time the unemployment rate declines below 6½%.”

What to Watch for From Fed Meeting The Wall Street Journal (Real Time Economics) | Jan 28
Watch how the Fed describes the economic outlook. The Fed has said it will only change its strategy on the winding down QE if its forecast for the economy shifts dramatically. Officials describe their view of the economic outlook in the first two paragraphs of the policy statement. Any changes there could provide signals that their forecast is shifting on the margins — and therefore clues about whether they may be wavering from the plan to reduce the bond purchases by $10-billion-per-meeting.

Nothing will deter Fed from tapering this weekMarketWatch | Jan 27
“I think the Fed is desperate to extract itself from quantitative easing, and it will continue to scale back the program and end it this year,” said Bernard Baumohl, chief global economist of the Economic Outlook Group, in an interview.